CHARTER TOWNSHIP OF PORTAGE HOUGHTON COUNTY, MICHIGAN. REPORT ON FINANCIAL STATEMENTS (with required supplementary and additional information)

Transcription

1 HOUGHTON COUNTY, MICHIGAN REPORT ON FINANCIAL STATEMENTS (with required supplementary and additional information) December 31, 2011

2 DECEMBER 31, 2011 ELECTED OFFICIALS Supervisor... Clerk... Treasurer... Trustee... Trustee... Trustee... Trustee... Bruce Petersen Sandra Luoma Carol Little Peggy Anderson James Zerbst Mark Jalkanen John Ollila

3 ` TABLE OF CONTENTS INDEPENDENT AUDITOR S REPORT... 5 MANAGEMENT S DISCUSSION AND ANALYSIS... 7 BASIC FINANCIAL STATEMENTS: Statement of Net Assets Statement of Activities Governmental Funds: Balance Sheet Statements of Revenues, Expenditures, and Changes in Fund Balances Proprietary Funds: Balance Sheet Statements of Revenues, Expenditures, and Changes in Retained Earnings Statements of Cash Flows Fiduciary Funds - Statement of Fiduciary Net Assets Notes to Financial Statements REQUIRED SUPPLEMENTAL FINANCIAL INFORMATION: Budgetary Comparison Schedules: General Fund Fire Protection Fund SUPPLEMENTAL FINANCIAL INFORMATION: General Fund: Detailed Statements of Revenues, Expenditures, and Changes in Fund Balance Special Revenue Funds: Combining Balance Sheets Combining Statements of Revenues, Expenditures, and Changes in Fund Balance Detailed Schedules of Revenues, Expenditures, and Changes in Fund Balance: Fire Protection Fund Cemetery Operating Fund Liquor Law Enforcement Fund Page 3

4 TABLE OF CONTENTS (Continued) SUPPLEMENTAL FINANCIAL INFORMATION: (Continued) Enterprise Funds: Combining Balance Sheets Combining Statements of Revenues, Expenses, and Changes in Retained Earnings Combining Statements of Cash Flows Detailed Schedules of Revenues, Expenses, and Changes in Retained Earnings: Sewer Fund - Portage Sewer Fund - Dakota Heights Water Fund - Portage Water Fund - Dakota Heights Water Fund - Woodland Road FEDERAL AWARDS: Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditor s Report on Compliance with Requirements Applicable to each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A Schedule of Expenditures of Federal Awards Schedule of Findings and Questioned Costs Notes to the Schedule of Expenditures of Federal Awards COMMUNICATIONS SECTION: Communications with Those Charged with Governance

5 RUKKILA š NEGRO AND ASSOCIATES Certified Public Accountants, PC 310 Shelden Avenue, Houghton, Michigan fax INDEPENDENT AUDITOR'S REPORT Members of the Township Board Charter Township of Portage Houghton, Michigan We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Charter Township of Portage as of and for the year then ended December 31, 2011, which collectively comprise the Township s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Township s management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Charter Township of Portage as of December 31, 2011, and the respective changes in financial position and, cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued a report dated June 27, 2012 on our consideration of the Charter Township of Portage s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. 5

6 Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and budgetary comparison information on pages 7 through 13 and 40 through 41 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the Charter Township of Portage s financial statements as a whole. The additional information on pages 43 to 59 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is also not a required part of the financial statements. The additional information on pages 43 to 59 and the schedule of expenditures of federal awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information and the schedule of expenditures of federal awards have been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. June 27, 2012 Rukkila, Negro & Associates, Certified Public Accountants, PC 6

7 MANAGEMENT S DISCUSSION AND ANALYSIS DECEMBER 31, 2011 This section of the Charter Township of Portage s annual Financial Report presents Management s Discussion and Analysis of the Township s financial activities during the fiscal year ended December 31, The analysis focuses on the Township s financial performance as a whole. It is intended to be read as part of the Township s financial statements, which immediately follows this section. Financial Highlights The Portage Township Dodgeville/Hurontown USDA funded Sewer lining project that was completed in the latter part 2011 has dramatically reduced the ground water infiltration rates in to the Township s sanitary sewer system. Comparing the years 2004 thru 2010 average flows, (prior to the pipe lining/joint grouting project), to a five month period in 2011 after the project, the treatable sewage flows where down on an average of 51.0%. The impact of these reductions on the Township has been dramatic. It has decreased the sewage treatment bills from the City of Houghton thus greatly benefitting our Sewer fund. Overview of the Financial Statements The annual report consists of a series of financial statements including other requirements as follows: Management s Discussion and Analysis introduces the basic financial statements and provides an analytical overview of the Township s financial activities. The Government-wide Financial Statements consists of a Statement of Net Assets and a Statement of Activities. These provide information about the activities of the Township as a whole and represent an overall view of the Township s finances. Statement of Net Assets and the Statement of Activities These statements provide information that help determine how the Township is doing financially as a result of the year s activities. The statements are shown using a full accrual basis. The Township s net assets and the changes in the net assets during the year are reported by these two statements. Increases or decreases in the Township s net assets is one way to determine if the financial position of the Township is improving or deteriorating. However, non-financial factors will need to be considered as well to determine the overall financial position of the Township. There are two kinds of activities in the Statement of Net Assets and the Statement of Activities: Governmental Activities - Most of the Township s basic services are reported here, including general administration, fire, public works, and parks and recreation. These activities are financed primarily by property taxes, intergovernmental revenues, and charges for services. Major Funds: Under GASB Statement 34, the audit focus has shifted from governmental type funds to major funds. Major funds are the largest funds in terms of assets, liabilities, revenues or expenses/expenditures. This allows the reader to see more detailed activity of the major funds. For the Charter Township of Portage, the General Fund, Fire Protection and Cemetery Perpetual Care meet this requirement. Non-major Funds: In the basic financial statements, non-major funds are consolidated into one column. These are smaller, less active funds. Detailed information about non-major funds can be found after the notes to the financial statements. 7

8 MANAGEMENT S DISCUSSION AND ANALYSIS DECEMBER 31, 2011 Overview of the Financial Statements - Continued Business-Type Activities - The Township s sewer and water activities are reported here. A fee is charged to customers to help defray the cost of these services. Fund Financial Statements tell how governmental services were financed in the short term as well as what remains for future spending. These statements also report the Township s operations in more detail than the Government-wide Financial Statements by providing information about the most significant funds. Notes to the financial statements provide additional information that is essential to a full understanding of the data provided in the basic financial statements. Required supplementary information, other than Management Discussion and Analysis, provides information about the required budgetary comparison information. Other supplementary information provides detailed information about the Non-major governmental funds and Water Funds. Governmental Funds - The Township s basic services are mainly reported in this type of fund, which concentrates on how money goes into and out of those funds and the balances left at year end that are available for spending. Modified accrual accounting is the reporting method used for these funds. These statements provide a short-term view of the Township s general governmental operations and the basic services it provides in detail. Information in these statements help determine whether there are more or fewer financial resources that can be spent in the future to finance the Township s programs. Governmental funds are essentially the same as the governmental activities with the exception that internal services are included in governmental activities but not as governmental funds. Governmental funds use a modified accrual basis of accounting and focus on near-term inflows and outflows of spendable resources and on the balances of spendable resources. In governmental funds, capital outlay and debt principal are reported on the Statement of Revenues, Expenditures and Changes in Fund Balance and depreciation is not recorded. The rule for reporting accrued vacation is more restrictive. The Balance Sheet for governmental funds does not include any capital assets or long-term debt. Proprietary Funds - Proprietary funds use a full accrual method of accounting for both government-wide statements and fund level statements. Enterprise funds are used to report business like activities. In general, these funds charge a fee for their services. The Township uses enterprise funds for water and sewer. Proprietary funds are reported in the same way that all activities are reported in the Statement of Net Assets and the Statement of Activities. The Township s enterprise funds are the same as the business-type activities we report in the government-wide statements but provide more detail and additional information, such as cash flows for proprietary funds. All enterprise funds qualify as major funds. 8

9 MANAGEMENT S DISCUSSION AND ANALYSIS DECEMBER 31, 2011 Overview of the Financial Statements - Continued Summary of Net Assets Governmental Activities Business-Type Activities Assets Current and other assets $ 712,529 $ 728,128 $ 275,265 $ 383,674 Restricted cash and investments 1,043,638 1,024, ,159 91,539 Capital assets - Net of accumulated depreciation 1,029,200 1,044,998 4,390,477 3,590,888 Total Assets $ 2,785,367 $ 2,797,529 $ 4,833,901 $ 4,066,101 Liabilities Current liabilities $ 15,640 $ 20,478 $ 81,174 $ 140,553 Long-term liabilities 154, ,345 1,671,795 1,371,520 Total Liabilities 169, ,823 1,752,969 1,512,073 Net Assets Invested in property and equipment - net of related debt 934, ,998 2,818,467 2,209,738 Restricted 1,043,105 1,024, ,159 91,539 Unrestricted 638, ,305 94, ,751 Total Net Assets 2,615,526 2,619,706 3,080,932 2,554,028 Total Liabilities and Net Assets $ 2,785,367 $ 2,797,529 $ 4,833,901 $ 4,066,101 Results of Operations Governmental Activities Business-Type Activities Revenues Program Revenue: Charges for services $ 79,025 $ 75,952 $ 414,229 $ 390,189 Grants and contributions Capital grants and contributions - 17, , ,100 General Revenue: Property taxes 200, , State shared revenue 230, , Other 132,307 66,137 11,250 7,565 Total Revenue 642, , ,379 1,322,854 Functions/Program Expenses General government 401, , Public safety 81, , Public works 142, , , ,271 Recreation 21,195 17, Total Expenses 646, , , ,271 Change in Net Assets (4,180) (112,766) 526, ,583 Net Assets - Beginning 2,619,706 2,732,472 2,554,028 1,649,445 Net Assets - Ending $ 2,615,526 $ 2,619,706 $ 3,080,932 $ 2,554,028 9

10 MANAGEMENT S DISCUSSION AND ANALYSIS DECEMBER 31, 2011 Overview of the Financial Statements - Continued The following two charts highlight the Township s governmental activities by revenues and expenses. Revenues - Governmental Activities Other $132, % Charges $79, % State $230, % Taxes $200, % Expenditures - Governmental Activities Fire Protection $59, % Cemetery $61, % Liquor Law Enforcement $2, % Recreation $21, % Public Works $100, % General Government $401, % The most significant portions of the revenues for all governmental activities of the Township comes from state shared revenue and property taxes. The Township s operating millage was mills. 10

11 MANAGEMENT S DISCUSSION AND ANALYSIS DECEMBER 31, 2011 Overview of the Financial Statements - Continued The following two charts highlight the Township s business-type activities by revenues and expenses. $500,000 $450,000 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $- Enterprise Funds - Revenue and Expenses Portage Sewer Portage Water Dakota Heights Water Woodland Road Water Dakota Sewer Revenue $291,424 $154,412 $24,253 $45,534 $472,756 Expenses $196,818 $192,526 $36,739 $31,346 $4,046 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $ Enterprise Funds - Retained Earnings Portage Sewer Dakota Sewer Portage Water Dakota Heights Water Woodland Road Water 2010 $1,166,032 $- $746,598 $404,529 $236, $1,260,638 $468,710 $708,484 $392,043 $251,057 11

12 MANAGEMENT S DISCUSSION AND ANALYSIS DECEMBER 31, 2011 Financial Analysis Governmental Funds: The focus of the Township s governmental funds is to provide information on near-term inflows, outflows and balances of spendable resources. Such information is useful in assessing the Township s financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government s net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, the Township s governmental funds reported combined unassigned fund balances of $646,950. The General Fund is the main operating fund of the Township. At the end of the current fiscal year, unassigned balance of the General Fund was $482,831. As a measure of the General Fund s liquidity, it may be useful to compare both unassigned fund balance to total fund expenditures. Unassigned fund balance represents 92% of total General Fund expenditures. The fund balance of the Township s General Fund decreased by $60,807 during the fiscal year. Revenues increased in state shared revenue, administration fees, loan proceeds, and sale of equipment. Expenditures increased by $81,631 with a majority of the increases in the following activities: Assessor - salaries and benefits; Roads - oiling of roads; Motor Vehicle - fuel and maintenance expenses; Town Hall - maintenance; Other Activities - Employee benefits and capital outlay; Maintenance Building - capital outlay. Proprietary Funds: The Township s proprietary funds provides the same type of information found in the government-wide financial statements, but in more detail. Net assets at the end of the year amounted to $3,080,932. Budgetary Highlights During the year ended December 31, 2011, the Township amended the budget at various times throughout the year. The amendments were done to cover unbudgeted expenditures. The amendments were mainly required to reconcile actual versus budgeted levels of effort required for various maintenance activities in the different funds. Capital Assets and Debt Administration The Township s investment in capital assets for the governmental and business-type activities as of December 31, 2011, amounts to $8,432,749. This investment in capital assets includes land, buildings, system improvements, machinery and equipment. Governmental Activities: A loader and backhoe were purchased for both Governmental and Business-Type activities, for the amounts of $129,784 and $79,627 respectively. Business-Type Activities: The Portage sewer fund received from the United States Department of Agriculture - Rural Development (USDA) $96,600 in grant revenues for major improvements to the Dakota Heights sewage disposal system. Sewage improvement costs for this fiscal year totaled $99,241. The Dakota Heights sewer fund received from the United States Department of Agriculture - Rural Development (USDA) $466,300 in grant revenues and $249,000 in bond funds for major improvements to the Dakota Heights sewage disposal system. Sewage improvement costs for this fiscal year totaled $649,410. Additional information on the Township s capital assets can be found starting on page 29 of this report. 12

13 MANAGEMENT S DISCUSSION AND ANALYSIS DECEMBER 31, 2011 Long-term debt At the end of the current fiscal year, the Township had total debt of $1,653,150. This total amount is backed by the full faith and credit of the Township. The Township s overall debt increased by $188,000 during the fiscal year. Dakota Heights Sewer fund received USDA bond proceeds in the amount of $249,000 for major system improvements. Additional information on the Township s long-term debt can be found starting page 34 of this report. Request for Information This financial report is designed to provide our citizens, taxpayers, customers, investors and creditors with a general overview of the Township s finances. If you have questions about this report or need additional information, contact the Township Supervisor at the Portage Township, Green Acres Road, Houghton, Michigan 49931, phone (906) and address supervisor@charterportagetwp.org. 13

14 STATEMENT OF NET ASSETS December 31, 2011 Primary Government Governmental Business-type ASSETS Activities Activities Total CURRENT ASSETS: Cash and cash equivalents $ 589,657 $ 231,919 $ 821,576 Receivables ,195 24,839 Inventories - 28,659 28,659 Prepaid expenses 18,752 4,894 23,646 Internal balances 16,473 (16,473) - Due from fiduciary funds 47,658 2,071 49,729 Due from other governmental units 39,345-39,345 TOTAL CURRENT ASSETS 712, , ,794 NONCURRENT ASSETS: Restricted cash 489, , ,389 Restricted investments 554, ,408 Capital assets 1,868,292 6,564,457 8,432,749 Less: accumulated depreciation (839,092) (2,173,980) (3,013,072) 1,029,200 4,390,477 5,419,677 TOTAL NONCURRENT ASSETS 2,072,838 4,558,636 6,077,066 TOTAL ASSETS $ 2,785,367 $ 4,833,901 $ 7,619,268 LIABILITIES: CURRENT LIABILITIES: Accrued expenses 2,440 1,314 3,754 Current maturities on lease payable 6,200 46,000 52,200 Current maturities on bond/note payable 7,000 33,860 40,860 TOTAL CURRENT LIABILITIES 15,640 81,174 96,814 NONCURRENT LIABILITIES: Bonds Payable, less current maturities 62,000 1,538,150 1,600,150 Lease Payable, less current maturities 19, , ,202 Accrued vacation payable 8,784-8,784 User deposits - 16,622 16,622 Deferred revenue 63,672 9,566 73,238 TOTAL NONCURRENT LIABILITIES 154,201 1,671,795 1,825,996 TOTAL LIABILITIES 169,841 1,752,969 1,922,810 NET ASSETS: Invested in capital assets, net of related debt 934,255 2,818,467 3,752,722 Restricted: General Fund 12,656-12,656 Fire Protection Fund 2,885-2,885 Cemetery 3,161-3,161 Cemetery Perpetual Care 1,024,403-1,024,403 Debt service - 168, ,159 Unrestricted 638,166 94, ,472 TOTAL NET ASSETS 2,615,526 3,080,932 5,696,458 TOTAL LIABILITIES AND NET ASSETS $ 2,785,367 $ 4,833,901 $ 7,619,268 The accompanying notes to the financial statements are an integral part of this statement. 14

15 STATEMENT OF ACTIVITIES For the Year Ended December 31, 2011 Net (Expense) Revenue and Program Revenues Changes in Net Assets Capital Primary Government Charges for Grants and Governmental Business-type Expenses Services Contributions Activities Activities Total FUNCTIONS/PROGRAMS Primary government: Government activities: General government $ 401,953 $ 79,025 $ - $ (322,928) $ - $ (322,928) Public safety 81, (81,080) - (81,080) Public works 142, (142,513) - (142,513) Recreation 21, (21,195) - (21,195) Total governmental activities 646,741 79,025 - (567,716) - (567,716) Business-type activities: Water 260, , (42,656) (42,656) Sewer 200, , , , ,310 Total business-type activities 461, , , , ,654 Total primary government $ 1,108,216 $ 493,254 $ 562,900 (567,716) 515,654 (52,062) General Revenues: Taxes 200, ,787 State shared revenue 230, ,442 Interest and investment earnings 39,052 3,039 42,091 Realized gain (loss) (513) - (513) Unrealized gain (loss) 41,535-41,535 Other 52,233 8,211 60,444 Total general revenues, transfers and special items 563,536 11, ,786 Change in Net Assets (4,180) 526, ,724 Net Assets- Beginning 2,619,706 2,554,028 5,173,734 Net Assets- Ending $ 2,615,526 $ 3,080,932 $ 5,696,458 The accompanying notes to the financial statements are an integral part of this statement. 15

16 BALANCE SHEET - GOVERNMENTAL FUNDS December 31, 2011 Major Funds Fire Permanent Fund Total General Protection Cemetery Non-major Governmental Fund Fund Perpetual Care Funds Funds ASSETS: CURRENT ASSETS: Cash and cash equivalents $ 414,626 $ 133,327 $ - $ 41,704 $ 589,657 Accounts receivable Prepaid expenses 12,656 2,885-3,211 18,752 Due from other funds 46,283-3,311-49,594 Due from fiduciary funds 28,483 19, ,658 Due from governmental units 39, ,345 TOTAL CURRENT ASSETS 542, ,387 3,311 44, ,650 RESTRICTED ASSETS: Restricted cash , ,230 Restricted investments , ,408 TOTAL RESTRICTED ASSETS - - 1,043,638-1,043,638 TOTAL ASSETS $ 542,037 $ 155,387 $ 1,046,949 $ 44,915 $ 1,789,288 LIABILITIES: CURRENT LIABILITIES: Accrued expenses 1,256 1, ,440 Due to other funds 7,222 21,432-4,467 33,121 Deferred revenue 38,072 25, ,672 TOTAL CURRENT LIABILITIES 46,550 48,216-4,467 99,233 FUND BALANCES: Nonspendable: Prepaid 12,656 2,885-3,161 18,702 Restricted - - 1,024,403-1,024,403 Unassigned 482, ,286 22,546 37, ,950 TOTAL FUND BALANCES 495, ,171 1,046,949 40,448 1,690,055 TOTAL LIABILITIES AND FUND BALANCES $ 542,037 $ 155,387 $ 1,046,949 $ 44,915 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds. 1,029,200 Long-term liabilities, including bonds payable are not due and payable in the current period and therefore are not reported in the funds. (103,729) Net assets of governmental activities $ 2,615,526 The accompanying notes to the financial statements are an integral part of this statement. 16

17 GOVERNMENTAL FUNDS STATEMENTS OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES For the Year Ended December 31, 2011 Major Funds Fire Permanent Fund Total General Protection Cemetery Non-major Governmental Fund Fund Perpetual Care Funds Funds Revenues: Taxes $ 108,436 $ 77,854 $ - $ - $ 186,290 Commercial Forest 14, ,497 State revenue 228, , ,442 Charges for services 56, ,363 79,025 Interest 3,592 1,280 34, ,052 Other revenue 26,663 1,215 15,000 9,355 52,233 Total revenues 438,029 80,349 49,147 34, ,539 Expenditures: General government 382, ,204 Public safety 3,011 59,421-2,289 64,721 Public works 118, , ,793 Recreation and culture 21, ,195 Total expenditures 524,781 59, , ,913 Excess (deficiency) of revenue over expenditures (86,752) 20,928 49,032 (29,582) (46,374) Other Financing Sources: Realize gain (loss) - - (513) - (513) Unrealized gain (loss) ,535-41,535 Loan proceeds 25, ,945 Operating transfers in (out) - - (67,508) 67,508 - Total other financing sources 25,945 - (26,486) 67,508 66,967 Net change in fund balance (60,807) 20,928 22,546 37,926 20,593 Fund Balances - Beginning of Year 556,294 86,243 1,024,403 2,522 Fund Balances - End of Year $ 495,487 $ 107,171 $ 1,046,949 $ 40,448 Amounts reported for governmental activities in the statement are different because: Governmental funds do not record depreciation and report capital outlays as expenditures. This amount represents capital outlay and depreciation. (15,798) In the statement of activities, only proceeds above associated debt are reported, whereas in the governmental funds, the proceeds from the loan increase financial resources. Thus, the change in net assets differs from the change in fund balance by the amount of loan proceeds. (25,945) Accrued expenses recorded in the statement of activities are not recorded as expenditures in the governmental funds until they are incurred. 1,970 Loan payments on long term debt 15,000 Change in net assets of governmental activities $ (4,180) The accompanying notes to the financial statements are an integral part of this statement. 17

18 PROPRIETARY FUNDS BALANCE SHEET December 31, 2011 Business-Type Activities Enterprise Funds Sewer Water System System Total ASSET AND OTHER DEBITS: Current Assets: Cash $ 7,874 $ 224,045 $ 231,919 Receivables 8,199 15,996 24,195 Inventory - 28,659 28,659 Due from other funds 148 7,386 7,534 Due from fiduciary funds - 2,071 2,071 Prepaid expenses 1,542 3,352 4,894 Total current assets 17, , ,272 Restricted cash 22, , ,159 General fixed assets: Fixed Assets 3,381,339 3,183,118 6,564,457 Accumulated depreciation (1,055,595) (1,118,385) (2,173,980) Total general fixed assets 2,325,744 2,064,733 4,390,477 TOTAL ASSETS AND OTHER DEBITS $ 2,366,229 $ 2,491,679 $ 4,857,908 LIABILITIES: Current Liabilities: Due to other funds 12,395 11,612 24,007 Current maturities on leases payable 9,347 24,513 33,860 Current maturities on bond payable 5,000 41,000 46,000 User deposits - 16,622 16,622 Accrued expenses ,314 Deferred revenue - 9,566 9,566 Total current liabilities 27, , ,369 Long-term liabilities: Leases payable net of current maturities 29,673 77, ,457 Bonds payable net of current maturities 580, ,150 1,538,150 Total long term liabilities 609,673 1,035,934 1,645,607 TOTAL LIABILITIES 636,881 1,140,095 1,776,976 FUND EQUITY AND OTHER CREDITS: Retained earnings 1,729,348 1,351,584 3,080,932 TOTAL LIABILITIES AND FUND EQUITY $ 2,366,229 $ 2,491,679 $ 4,857,908 The accompanying notes to the financial statements are an integral part of this statement. 18

19 PROPRIETARY FUNDS STATEMENTS OF REVENUES, EXPENDITURES, AND CHANGES IN RETAINED EARNINGS For the Year Ended December 31, 2011 Business-Type Activities Enterprise Funds Sewer Water System System Total OPERATING REVENUE Charges for services $ 193,599 $ 212,389 $ 405,988 Parts, meters, hook-up fees 2,675 5,566 8,241 Other 5,006 3,205 8,211 TOTAL OPERATING REVENUE 201, , ,440 EXPENSES: Salaries 20,188 43,158 63,346 Payroll taxes 1,589 5,421 7,010 Employee benefits 6,718 13,381 20,099 Supplies 3,801 7,020 10,821 Utilities 5,154 4,645 9,799 Insurance 7,636 3,217 10,853 Repairs and maintenance 1,896 4,038 5,934 Depreciation 43,700 82, ,030 Purchase services 108,209 51, ,168 Miscellaneous 1,243 4,052 5,295 TOTAL EXPENSES 200, , ,355 OPERATING INCOME(LOSS) 1,146 1,939 3,085 NON-OPERATING REVENUES (EXPENSES) Grant proceeds 562, ,900 Interest income - 3,039 3,039 Interest expense (730) (41,390) (42,120) TOTAL NON-OPERATING REVENUES (EXPENSES) 562,170 (38,351) 523,819 NET INCOME (LOSS) 563,316 (36,412) 526,904 RETAINED EARNINGS, BEGINNING OF YEAR 1,166,032 1,387,996 2,554,028 RETAINED EARNINGS, END OF YEAR $ 1,729,348 $ 1,351,584 $ 3,080,932 The accompanying notes to the financial statements are an integral part of this statement. 19

20 STATEMENTS OF CASH FLOWS PROPRIETARY FUNDS For the Year Ended December 31, 2011 Enterprise Funds Sewer Water System System Total CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers $ 290,052 $ 220,544 $ 510,596 Payments to suppliers (230,944) (96,497) (327,441) Payments to employees (19,772) (43,657) (63,429) Other receipts (payments) Net cash provided by operating activities 39,336 80, ,726 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Operating subsidies and transfers to other funds (67,364) (3,203) (70,567) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Purchases of capital assets (797,508) (128,108) (925,616) Capital lease proceeds 48, ,108 Capital lease payments (9,840) (25,811) Grant proceeds 562, ,900 Bond Proceeds 249,000 - Principal paid on capital debt (5,000) (41,000) (46,000) Interest paid on capital debt (730) (41,390) (42,120) Net cash (used) by capital and related financing activites 47,679 (108,201) (60,522) CASH FLOWS FROM INVESTING ACTIVITIES Interest and dividends - 3,039 3,039 Net cash provided by investing activities - 3,039 3,039 Net (decrease) in cash and cash equivalents 19,651 (27,975) (8,324) Cash and cash equivalents - beginning of year 10, , ,402 Cash and cash equivalents - ending of year $ 30,596 $ 369,482 $ 400,078 Reconciliation of operating income (loss) to net cash provided (used) by operating activities: Operating income (loss) $ 1,146 $ 1,939 $ 3,085 Adjustments to reconcile operating income to net cash provided (used) by operating activities: Depreciation expense 43,700 82, ,030 Change in assets and liabilities Receivables, net 88,772 9,566 98,338 Other assets (1,542) (2,764) (4,306) Accounts and other payables (93,156) - (93,156) Other liabilities - (10,182) (10,182) Accrued expenses 416 (499) (83) Net cash provided by operating activities $ 39,336 $ 80,390 $ 119,726 The accompanying notes to financial statements are an integral part of this statement. 20

21 STATEMENT OF FIDUCIARY NET ASSETS December 31, 2011 Tax Collection Fund ASSETS: RESTRICTED ASSETS: Cash and cash equivalents $ 341,454 TOTAL RESTRICTED ASSETS $ 341,454 LIABILITIES: CURRENT LIABILITIES: Due to governmental funds $ 49,729 Due to other governmental units 291,725 TOTAL CURRENT LIABILITIES $ 341,454 The accompanying notes to the financial statements are an integral part of this statement. 21

22 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 The Charter Township of Portage is a Charter Township located in Houghton County, Michigan, and encompasses an area of square miles. The Township operates under an elected Board of Trustees (seven members, including the Township Supervisor, Township Clerk, Township Treasurer, and four trustees) and provides services to a population of approximately 3,150 Township residents. NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies of the Charter Township of Portage conform to generally accepted accounting principles for local governmental units as prescribed by the Governmental Accounting Standards Board and the American Institute of Certified Public Accountants. The following is a summary of the more significant policies: REPORTING ENTITY The Charter Township of Portage is incorporated under the laws of the State of Michigan and operates under an elected council form of government. There are no other governmental units within the Township that are controlled by, or dependent upon the Township's Board of Trustees. Control by, or dependence on the Township, was determined on the basis of appointment of the governing body or governing authority budget adoption, taxing authority, outstanding debt secured by revenues or general obligations of the Township, obligation of the Township to finance any deficits that may occur, surplus funds, and scope of public service. MEASUREMENT FOCUS, BASIS OF ACCOUNTING AND FINANCIAL STATEMENT PRESENTATION Government-Wide Financial Statements - The statement of net assets and the statement of activities display information about the Township as a whole. These statements distinguish between activities that are governmental and those that are considered business-type. These statements exclude fiduciary activities such as trust and agency funds. The government-wide financial statements are prepared using the economic resources measurement focus and the accrual basis of accounting as further defined under proprietary funds below. This is the same approach used in the preparation of the proprietary fund financial statements but differs from the manner in which governmental fund financial statements are prepared. Therefore, governmental fund financial statements include a reconciliation with brief explanations to better identify the relationship between the government-wide statements and the statements of governmental funds. The government-wide statement of activities presents a comparison between expenses and program revenues for each different identifiable activity of the business-type activities of the Township and for each governmental program. Expenses are those that are specifically associated with a service or program and are therefore clearly identifiable to a particular function. Program revenues include charges paid by the recipients of the goods or services offered by the programs and grants and contributions that are restricted to meeting the operational or capital requirements of a particular function. Revenues which are not classified as program revenues are presented as general revenues. The comparison of program revenues and expenses identifies the extent to which each function is self-financing or draws from the general revenues of the Township. Internal activity is limited to inter-fund transfers which are eliminated to avoid doubling up revenues and expenses. Net assets are reported as restricted when constraints placed on net asset use are either externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or imposed by law through constitutional provisions or enabling legislation. The net assets restricted for other purposes result from special revenue and capital projects and the restrictions on their net asset use. 22

23 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Fund Financial Statements - Fund financial statements report detailed information about the Township. The focus of governmental and enterprise fund financial statements is on major funds rather than reporting funds by type. Each major fund is presented in a separate column. The major governmental funds are each presented in a single column on the financial statements. The following fund types are used by the Township: Governmental Funds - The focus of the governmental funds measurement (in the fund statements) is upon determination of the financial position (sources, uses, and balances of financial resources) rather than upon net income. The following is a description of the major governmental funds of the Township: General Fund - The General Fund is the government s primary operating fund. It is used to account for all financial resources of the general government, except those required to be accounted for in another fund. Fire Protection Fund - The Fire Fund accounts for fire protection by special assessment under Act 33, 1951, as amended. Permanent Fund Type - The Cemetery Perpetual Care Fund is the Township s only permanent fund. The principal portion of the fund must stay intact, but the interest earnings are used to provide care for the cemetery. The following is a description of the non-major governmental fund of the Township: Cemetery Fund - The Cemetery Fund accounts for all operations of cemetery activities. Liquor Law Fund - This fund accounts for all activity in connection with liquor law enforcement as required by the State of Michigan and is funded by the same. Enterprise Funds - Enterprise Funds are used to account for operations (a) that are financed and operated in a manner similar to private business enterprises where the intent of the governing body is that the costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges; or (b) where the governing body has decided the periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability, or other purposes. Sewer and Water funds are major enterprise funds of the Township. Fiduciary Funds - Fiduciary funds are used to report assets held in a trustee or agency capacity for others and therefore are not available to support Township programs. The agency fund is custodial in nature and does not present results of operations or have a measurement focus. Fiduciary funds are not included in the government-wide statements. The following is a description of the fiduciary fund: Current Tax Collection Fund - The Current Tax Collection Fund accounts for collection and disbursement of property tax collections to all taxing agencies. 23

24 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Accrual Method The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Modified Accrual Method Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the Township considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is incurred. Property taxes, state revenue, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when cash is received by the Township. Other Accounting Policies Cash and Cash Equivalents - The Township s cash and cash equivalents include checking, money market, certificates of deposits, and savings accounts. The Township reports its investments in accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools and No. 40, Deposits and Investment Risk Disclosures. Under these standards, certain investments are valued at fair value as determined by quoted market prices, or by estimated fair values when quoted market prices are not available. The standards also provide that certain investments are valued at cost (or amortized cost) when they are of a short-term duration, the rate of return is fixed, and the Township intends to hold the investment until maturity. Accordingly, investments in banker acceptances and commercial paper are recorded at amortized cost. State statutes authorize the Township to invest in U.S. government obligations, certificates of deposit, commercial paper, repurchase agreements, bankers acceptances, and with some restrictions, mutual funds. An Attorney General s opinion states that public funds may not be deposited in financial institutions located in states other than Michigan. The Township does have an investment policy that meets state statutory regulations. Property Taxes - Property taxes are levied on December 1. The Township collects its own property taxes until February 28, at which time unpaid real taxes are turned over to Houghton County for collection. 24

25 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) For the year ended December 31, 2011, the Township levied the following amounts per $1,000 of assessed valuation: Fund Mills Township Operating Fire Operating Restricted assets - Certain cash accounts are classified as restricted assets on the balance sheet because their use is limited. Receivables and Payables - In general, outstanding balances between funds that are representative of lending/borrowing arrangements outstanding at the end of the year are reported as due to/from other funds. All receivables, including property taxes receivable, are shown net of allowance for uncollectibles. Inventory - Inventory is valued at cost as determined on the first-in, first-out method for the Water Fund. For all other funds the Township utilizes the purchase method of recording inventories of materials and supplies. Under the purchase method, inventories are recorded as expenditures when they are purchased. Encumbrances - Encumbrances are defined as commitments related to unperformed contracts for goods and services. The Township does not record encumbrances in the normal course of operating its accounting system and none are recorded in the accompanying financial statements. Capital Assets - Capital assets, which include land, buildings, equipment, water/sewer improvements, and vehicles are reported in the applicable governmental activities column in the government-wide financial statements. Capital assets are defined by the government as assets with an initial individual cost of more than $3,000. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. Costs of normal repair & maintenance that do not add to the value or materially extend asset lives are not capitalized. Buildings, equipment, and vehicles are depreciated using the straight-line method over the following useful lives: Buildings and additions Vehicles Furniture and other equipment years 5-10 years 5-10 years Interfund Activity As a general rule, the effect of inter-fund activity has been eliminated from the government-wide statements. Exceptions to this rule are: 1) activities between funds reported as governmental activities and funds reported as business-type activities, and 2) activities between funds that are reported in different functional categories in either the governmental or business-type activities column. Elimination of these activities would distort the direct cost and program revenues for the functions concerned. In the fund financial statements, transfers represent flows of assets without equivalent flows of assets in return or a requirement for repayment. Interfund receivables and payables have been eliminated from the Statement of Net Assets, except for the residual amounts due between governmental and business-type activities. 25

26 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Fund Balance - The Township adopted the provisions of GASB Statement Number 54 (GASB 54), Fund Balance Reporting and Governmental Fund Type Definitions, in the current year. GASB 54 establishes fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources reported in governmental funds. Detailed information on fund balances of governmental funds is presented on the face of the balance sheet. Governmental funds report nonspendable fund balance for amounts that cannot be spent because they are either a.) Not in spendable form, or b.) Legally or contractually required to be maintained intact. Restricted fund balance is reported when externally imposed constraints are placed on the use of the resources by grantors, contributors, laws or regulations of other governments. Committed fund balance, if any, is reported from amounts that can be used for specific purposes pursuant to constraints imposed by formal action by the government s highest level of decision making authority, the Board of Commissioners. A formal resolution of the Board of Commissioners is required to establish, modify or rescind a fund balance commitment. The Township reports assigned fund balance for amounts that are constrained by the government s intent to be used for specific purposes, but are neither restricted nor committed. Unassigned fund balance is the residual classification for the general fund. When the Township incurs an expenditure for purposes for which various fund balance classifications can be used, it is the Township s policy to use restricted fund balance first, then committed fund balance, assigned fund balance, and finally unassigned balance. Accrued Benefits - The liabilities for accrued benefits reported in the government-wide statements in the amount of $8,784, consisted of sick leave and vacation balances. Accrued vacation time is payable upon termination of employment or retirement. Accrued sick leave is not paid to employees upon termination of employment or retirement, thus there is no vested liability for unused sick leave. Long-term Obligations - In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the statement of net assets. Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. Reclassification - Certain items in the 2010 financial statements have been reclassified to conform with the current year presentation. 26